Financial overhaul unveiled in Senate

by David Cho and Brady Dennis - Mar. 16, 2010 12:00 AMWashington Post

WASHINGTON - Senate Banking Committee Chairman Chris Dodd, D-Conn., introduced on Monday afternoon a far-reaching bill to overhaul the nation's financial-regulatory system that was aimed at shoring up support among fellow Democrats even as he held out hope for a bipartisan deal with Republicans.

On nearly all the key issues, the measure takes a relatively tough line with financial firms. A new consumer-protection agency, for instance, would have the authority to write and enforce rules that would apply to banks with more than $10 billion in assets, as well as mortgage companies, credit-card issuers and other large non-bank lenders - a broader scope than Republicans have been willing to grant.

Dodd's bill also would give shareholders of public companies more say on executive pay and in nominating directors, an idea that has faced fierce opposition from Republicans and many financial firms.

"Our regulatory structure, constructed in a piecemeal fashion over many decades, remains hopelessly inadequate," Dodd said at a news conference. "There hasn't been financial reform on the scale that I'm proposing this afternoon since the 1930s."

The measure also adopts the "Volcker Rule," a proposal from the Obama administration that would require regulators to prohibit banks from investing in or owning hedge funds and private-equity funds. This idea has been aggressively opposed by Wall Street.

The bill also extends federal regulation to new corners of the financial system. Credit-rating agencies such as Moody's and Standard & Poor's would be supervised by a new office in the Securities and Exchange Commission and would be subject to regulatory action and private lawsuits for the first time. Trading in derivatives would be regulated and some trades publicly reported for the first time.

President Barack Obama said in a statement that the proposal would provide a foundation for strengthening the nation's financial system.

"As the bill moves forward, I will take every opportunity to work with Chairman Dodd and his colleagues to strengthen the bill and will fight against efforts to weaken it," he said. "We will stand firm against any attempt by the financial sector to avoid their responsibilities: In any future crisis, the big financial companies must pay, not taxpayers,"

Despite the inclusion of proposals aimed at pleasing Democrats, Dodd's staff labored throughout the weekend to piece together language that also would preserve the possibility of winning GOP support.

"I don't have standing with me today bipartisan support at this podium," Dodd said. But he noted that "at any stage in the development of a bill, you can develop that consensus."

Dodd proposed housing a new consumer regulator in the Federal Reserve, a compromise that has garnered Republican support but is anathema to liberal Democrats and consumer advocates who argue that the Fed failed miserably in protecting consumers in recent years.

Dodd said his bill incorporated many of the compromises he reached in recent weeks with Sen. Bob Corker, R-Tenn., with whom he had been negotiating before announcing Thursday that he would forge ahead alone. Still, he acknowledged that key elements will remain controversial.

Republicans on the Banking Committee said Dodd's new bill almost certainly will not get GOP support. Still, Corker said it represents "a huge improvement" over the initial proposal that Dodd released last November.

Dodd's bill in general is much kinder to the Fed, a significant departure from his initial draft, in which he proposed stripping the Fed of its oversight authority. Under the new version, the Fed would retain supervision of bank-holding companies with more than $50 billion in assets. The agency would lose oversight of thousands of bank-holding companies that fall below that threshold, as well as hundreds of state-chartered banks.

Republicans on Dodd's committee have urged him in recent days not to push a bill through too quickly, insisting that doing so could thwart any hope of a bipartisan agreement.

Other provisions in the bill include the establishment of a systemic-risk council, composed of a collection of regulators and chaired by someone appointed by the president. In addition, firms such as Morgan Stanley and Goldman Sachs, which converted into bank-holding companies during the financial crisis, would not be allowed to revert to their old status without government approval.

Dodd said he hopes the result will be a proposal that prompts lawmakers to take a stand on the issues and move toward common ground.

At a glance

Chaired by the Treasury secretary, it would coordinate federal efforts to identify and manage risks to the financial system and the broader economy.

What it means: Dodd wanted to give the council broad responsibility for policing systemic risks. After massive administration pressure, he agreed instead to give much of that power to the Fed. The oversight council will instead function essentially as the Fed's board of directors on regulatory issues, signing off on its decisions.

A new liquidation process

What it means: Companies could be liquidated by joint agreement of the Treasury Department, the Fed and the Federal Deposit Insurance Corp.

Regulation of credit-rating agencies

What it means: Breaking with the administration and the House version of financial reform, Dodd's bill would hold Moody's, Standard & Poor's and other ratings agencies potentially liable for their judgments about the safety of bonds and other investments. The industry would be regulated by the Securities and Exchange Commission.

Some structure renovations

What it means: Dodd abandoned his earlier proposal to create a single banking regulator. The Fed's authority over smaller banks would be split between the FDIC and the Office of the Comptroller of the Currency.